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Development

Low-income countries differ from higher-income countries in that they have large informal sectors, greater prevalence of self-employment and subsistence agriculture, low female labor participation rates and poor labor market conditions. As labor is most often the only asset of someone in poverty, policies that are not associated with job creation may fail to reduce poverty. Contributions to this subject area deal with the potential of labor economics to address those challenges.

Business consulting and supervisory skills
training can improve firm productivity and labor relations

Productivity differences across firms and countries are surprisingly large
and persistent. Recent research reveals that the country-level distributions
of productivity and quality of management are strikingly similar, suggesting
that management practices may play a key role in the determination of worker
and firm productivity. Understanding the causal impacts of these practices
on productivity and the effectiveness of various management interventions is
thus of primary policy interest.

Remittances have the potential to lift up
developing economies

Remittances have risen spectacularly in recent
decades, capturing the attention of researchers and policymakers and
spurring debate on their pros and cons. Remittances can improve the
well-being of family members left behind and boost the economies of
receiving countries. They can also create a culture of dependency in the
receiving country, lowering labor force participation, promoting conspicuous
consumption, and slowing economic growth. A better understanding of their
impacts is needed in order to formulate specific policy measures that will
enable developing economies to get the greatest benefit from these monetary
inflows.

Labor market regulation should aim to improve the
functioning of the labor market while protecting workers

Governments regulate employment to protect
workers and to improve labor market efficiency. However, employment
regulations can be controversial, often complicated by opposing ideological
views. Thus, it is important for policymakers in developing countries to
base decisions on empirical evidence of the impacts of these regulations.
The majority of the evidence suggests that most countries have set their
regulations in the appropriate range. But it can be costly when countries
either overregulate or underregulate their labor market.

The level of compliance with minimum wage laws
often depends on factors specific to each labor market. In most developing
countries, a substantial share of workers still earns less than the legal
minimum. Enforcement has not kept up with growth in regulations to protect
workers from low wages and poor working conditions. Several institutional
structures shape enforcement, including the role of labor inspectors and
approaches to compliance, and these and other variables can be analyzed to
explore their effects on the level of minimum wage violations.

In addition to the traditional education system
targeting children and youth, one potentially important vehicle to improve
literacy and numeracy skills is adult literacy programs (ALPs). In many
developing countries, however, these programs do not seem to achieve these
hoped for, ex ante, objectives and have therefore received less attention,
if not been largely abandoned, in recent years. But, evidence shows that
ALPs do affect other important socio-economic outcomes such as health,
household income, and labor market participation by enhancing participants’
health knowledge and income-generating activities.

Unemployment insurance can protect against
income loss and create formal employment

Unemployment insurance can be an efficient tool
to provide protection for workers against unemployment and foster formal job
creation in developing countries. How much workers value this protection and
to what extent it allows a more efficient job search are two key parameters
that determine its effectiveness. However, evidence shows that important
challenges remain in the introduction and expansion of unemployment
insurance in developing countries. These challenges range from achieving
coverage in countries with high informality, financing the scheme without
further distorting the labor market, and ensuring progressive
redistribution.

In transition economies, better property rights
protection and rule of law enforcement can boost job creation and growth

In the transition from central planning to a
market economy in the 1990s, governments focused on privatizing or closing
state enterprises, reforming labor markets, compensating laid-off workers,
and fostering job creation through new private firms. After privatization,
the focus shifted to creating a level playing field in the product market by
protecting property rights, enforcing the rule of law, and implementing
transparent start-up regulations. A fair, competitive environment with
transparent rules supports long-term economic growth and employment creation
through the reallocation of jobs in favor of new private firms.

Labor productivity is generally seen as bringing
wealth and prosperity; but how does it vary over the business cycle?

Aggregate labor productivity is a central
indicator of an economy’s economic development and a wellspring of living
standards. Somewhat controversially, many macroeconomists see productivity
as a primary driver of fluctuations in economic activity along the business
cycle. In some countries, the cyclical behavior of labor productivity seems
to have changed. In the past 20–30 years, the US has become markedly less
procyclical, while the rest of the OECD has not changed or productivity has
become even more procyclical. Finding a cogent and coherent explanation of
these developments is challenging.

How to design social protection programs that
poor women can benefit from

Women are more likely than men to work in the
informal sector and to drop out of the labor force for a time, such as after
childbirth, and to be impeded by social norms from working in the formal
sector. This work pattern undermines productivity, increases women's
vulnerability to income shocks, and impairs their ability to save for old
age. Many developing countries have introduced social protection programs to
protect poor people from social and economic risks, but despite women's
often greater need, the programs are generally less accessible to women than
to men.